FROM THE OFFICE OF PUBLIC AFFAIRS

Mexico City—Today Deputy Treasury Secretary Kenneth Dam announced that U.S. Ambassador to Mexico Tony Garza and Mexican Secretary of Foreign Relations Jorge Castaneda Gutman signed a new Protocol to amend the existing bilateral income tax treaty, concluded in 1992, between the two countries.  The new Protocol is subject to ratification in accordance with the procedures of each country.  In the United States, the signed Protocol will be transmitted to the Senate for its advice and consent to ratification.

"The new protocol amending the existing tax treaty between the United States and Mexico reflects the close economic relationship between our two countries. We are pleased that the new agreement provides significant reductions in taxes on dividends, which will further facilitate cross-border trade and investment," stated Deputy Secretary Dam, in explaining the significance of the Protocol.

The most important aspects of the new Protocol deal with the taxation of cross-border dividend payments. The new Protocol is only the third U.S. tax agreement to provide a zero rate of withholding tax on dividends arising from certain direct investments. Dividends from 10-percent owned corporations which do not qualify for this exemption would continue to be subject to the maximum rate of withholding tax of 5 percent under the existing treaty.  The new agreement thus will serve to further reduce tax-related barriers to trade and investment flows between the United States and Mexico. 

The new Protocol also brings the tax treaty relationship with Mexico into closer conformity with U.S. treaty policy and modernizes the treaty to take account of changes in the laws and policies of both countries since the current treaty was signed.  For example, another important aspect of the new Protocol is a modernized provision regarding the determination of the source of income for purposes of applying the rules regarding the elimination of double taxation.  Under the new rule, income that may be taxed by one of the parties in accordance with the treaty will generally be treated as arising in that country.  Thus, the other country generally will exempt that income or provide a credit for the taxes paid with respect to such income.

A copy of the new Protocol is attached.